IDEAS home Printed from https://ideas.repec.org/
MyIDEAS: Log in (now much improved!) to save this article

Hedging and Coordinated Risk Management: Evidence from Thrift Conversions

Author Info

Listed author(s):
  • Catherine Schrand

    (University of Pennsylvania,)

  • Haluk Unal

    (University of Maryland and the Wharton Financial Institutions Center)

Abstract

We provide an explanation for hedging as a means of allocating rather than reducing risk. We argue that when increases in total risk are costly, firms optimally allocate risk by reducing (increasing) exposure to risks that provide zero (positive) economic rents. Our evidence shows that mutual thrifts that convert to stock institutions increase total risk following conversion, consistent with their increased abilities and incentives for risk taking. They achieve this increase by hedging interest-rate risk and increasing credit risk. We provide some evidence that risk-management activities are related to growth capacity and management compensation structure attained at conversion. Copyright The American Finance Association 1998.

Download Info

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.

File URL: http://www.blackwell-synergy.com/servlet/useragent?func=synergy&synergyAction=showTOC&journalCode=jofi&volume=53&issue=3&year=1998&part=null
File Function: link to full text
Download Restriction: Access to full text is restricted to subscribers.

As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.

Article provided by American Finance Association in its journal The Journal of Finance.

Volume (Year): 53 (1998)
Issue (Month): 3 (06)
Pages: 979-1013

as
in new window

Handle: RePEc:bla:jfinan:v:53:y:1998:i:3:p:979-1013
Contact details of provider: Web page: http://www.afajof.org/

More information through EDIRC

Order Information: Web: http://www.afajof.org/membership/join.asp

Keywords:

Other versions of this item:

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:

as
in new window


  1. Myers, Stewart C. & Majluf, Nicolás S., 1945-, 1984. "Corporate financing and investment decisions when firms have information that investors do not have," Working papers 1523-84., Massachusetts Institute of Technology (MIT), Sloan School of Management.
  2. Maksimovic, Vojislav & Unal, Haluk, 1993. " Issue Size Choice and "Underpricing" in Thrift Mutual-to-Stock Conversions," Journal of Finance, American Finance Association, vol. 48(5), pages 1659-1692, December.
  3. French, Kenneth R & Ruback, Richard S & Schwert, G William, 1983. "Effects of Nominal Contracting on Stock Returns," Journal of Political Economy, University of Chicago Press, vol. 91(1), pages 70-96, February.
  4. Myers, Stewart C. & Majluf, Nicholas S., 1984. "Corporate financing and investment decisions when firms have information that investors do not have," Journal of Financial Economics, Elsevier, vol. 13(2), pages 187-221, June.
  5. Gary Gorton & Richard Rosen, 1995. "Banks and Derivatives," NBER Chapters,in: NBER Macroeconomics Annual 1995, Volume 10, pages 299-349 National Bureau of Economic Research, Inc.
  6. Catherine Schrand, 1994. "An evaluation of the effects of accounting rules on interest rate risk management in the savings and loan industry," Proceedings 30, Federal Reserve Bank of Chicago.
  7. Diamond, Douglas W & Verrecchia, Robert E, 1982. " Optimal Managerial Contracts and Equilibrium Security Prices," Journal of Finance, American Finance Association, vol. 37(2), pages 275-287, May.
  8. Barth, James R & Bartholomew, Philip F & Bradley, Michael, 1990. " Determinants of Thrift Institution Resolution Costs," Journal of Finance, American Finance Association, vol. 45(3), pages 731-754, July.
  9. Rasmusen, Eric, 1988. "Mutual Banks and Stock Banks," Journal of Law and Economics, University of Chicago Press, vol. 31(2), pages 395-421, October.
  10. White, Halbert, 1980. "A Heteroskedasticity-Consistent Covariance Matrix Estimator and a Direct Test for Heteroskedasticity," Econometrica, Econometric Society, vol. 48(4), pages 817-838, May.
  11. Masulis, Ronald W. & Korwar, Ashok N., 1986. "Seasoned equity offerings : An empirical investigation," Journal of Financial Economics, Elsevier, vol. 15(1-2), pages 91-118.
  12. Haluk Unal, 1997. "Regulatory Misconceptions in Pricing Thrift Conversions: A Closer Look at the Appraisal Process," Journal of Financial Services Research, Springer;Western Finance Association, vol. 11(3), pages 239-254, June.
  13. Kane, Edward J & Unal, Haluk, 1990. " Modeling Structural and Temporal Variation in the Market's Valuation of Banking Firms," Journal of Finance, American Finance Association, vol. 45(1), pages 113-136, March.
  14. Froot, Kenneth A. & Stein, Jeremy C., 1998. "Risk management, capital budgeting, and capital structure policy for financial institutions: an integrated approach," Journal of Financial Economics, Elsevier, vol. 47(1), pages 55-82, January.
  15. O'Hara, Maureen & Shaw, Wayne, 1990. " Deposit Insurance and Wealth Effects: The Value of Being "Too Big to Fail."," Journal of Finance, American Finance Association, vol. 45(5), pages 1587-1600, December.
  16. Cordell, Lawrence R & MacDonald, Gregor D & Wohar, Mark E, 1993. "Corporate Ownership and the Thrift Crisis," Journal of Law and Economics, University of Chicago Press, vol. 36(2), pages 719-756, October.
  17. Flannery, Mark J & James, Christopher M, 1984. " The Effect of Interest Rate Changes on the Common Stock Returns of Financial Institutions," Journal of Finance, American Finance Association, vol. 39(4), pages 1141-1153, September.
  18. Beverly L. Hadaway & Samuel C. Hadaway, 1981. "An Analysis Of The Performance Characteristics Of Converted Savings And Loan Associations," Journal of Financial Research, Southern Finance Association;Southwestern Finance Association, vol. 4(3), pages 195-206, 09.
  19. Smith, Clifford W. & Stulz, René M., 1985. "The Determinants of Firms' Hedging Policies," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 20(04), pages 391-405, December.
  20. Froot, Kenneth A & Scharfstein, David S & Stein, Jeremy C, 1993. " Risk Management: Coordinating Corporate Investment and Financing Policies," Journal of Finance, American Finance Association, vol. 48(5), pages 1629-1658, December.
  21. Franklin R. Edwards, 1981. "The regulation of futures and forward trading by depository institutions: A legal and economic analysis," Journal of Futures Markets, John Wiley & Sons, Ltd., vol. 1(2), pages 201-218, 06.
  22. Katerina Simons, 1992. "Mutual-to-stock-conversions by New England savings banks: where has all the money gone?," New England Economic Review, Federal Reserve Bank of Boston, issue Mar, pages 45-53.
  23. Douglas W. Diamond, 1984. "Financial Intermediation and Delegated Monitoring," Review of Economic Studies, Oxford University Press, vol. 51(3), pages 393-414.
  24. Masulis, Ronald W., 1987. "Changes in ownership structure : Conversions of mutual savings and loans to stock charter," Journal of Financial Economics, Elsevier, vol. 18(1), pages 29-59, March.
  25. Dennis E. Bennett & Roger Lundstrom & Donald G. Simonson, 1986. "Estimating portfolio net worth values and interest rate risk in savings institutions," Proceedings 116, Federal Reserve Bank of Chicago.
  26. Richard B. Carter & Roger D. Stover, 1991. "Management Ownership and Firm Compensation Policy: Evidence From Converting Savings and Loan Associations," Financial Management, Financial Management Association, vol. 20(4), Winter.
  27. Campbell, Tim S & Kracaw, William A, 1990. " Corporate Risk Management and the Incentive Effects of Debt," Journal of Finance, American Finance Association, vol. 45(5), pages 1673-1686, December.
  28. James A. Verbrugge & Steven J. Goldstein, 1981. "Risk Return, And Managerial Objectives: Some Evidence From The Savings And Loan Industry," Journal of Financial Research, Southern Finance Association;Southwestern Finance Association, vol. 4(1), pages 45-58, 03.
  29. Asquith, Paul & Mullins, David Jr., 1986. "Equity issues and offering dilution," Journal of Financial Economics, Elsevier, vol. 15(1-2), pages 61-89.
  30. Myers, Stewart C., 1977. "Determinants of corporate borrowing," Journal of Financial Economics, Elsevier, vol. 5(2), pages 147-175, November.
Full references (including those not matched with items on IDEAS)

Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.

as
in new window


Cited by:
This item has more than 25 citations. To prevent cluttering this page, these citations are listed on a separate page.

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

Access and download statistics

When requesting a correction, please mention this item's handle: RePEc:bla:jfinan:v:53:y:1998:i:3:p:979-1013. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Wiley-Blackwell Digital Licensing)

or (Christopher F. Baum)

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.

This information is provided to you by IDEAS at the Research Division of the Federal Reserve Bank of St. Louis using RePEc data.